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http://ssrn.com/abstract=879567
 
 

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Using Credit Ratings for Capital Requirements on Lending to Emerging Market Economies: Possible Impact of a New Basel Accord


Brieuc Monfort


International Monetary Fund (IMF) - Policy Development and Review Department

Christian Mulder


International Monetary Fund (IMF) - Policy Development and Review Department

March 2000

IMF Working Paper No. 00/69

Abstract:     
The Basel Committee on Banking Supervision has proposed linking capital requirements for bank loans to ratings by commercial credit rating agencies. Estimates for 20 emerging market economies show that sovereign ratings react procyclically to crisis indicators. Ratings deteriorate if the real effective exchange rate depreciates, in contrast with the positive effect on overall debt service capacity depreciations are normally supposed to have. Simulations show that linking capital requirements to ratings would have drastically increased these requirements during the crisis periods after decreasing them in the run up to the crises. Simulations suggest modest efficiency gains of using sovereign credit ratings for capital requirements on emerging market lending.

Number of Pages in PDF File: 46

Keywords: Rating agencies, capital requirements, economic crises, emerging markets

JEL Classification: G28, E32, E5, F34

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Date posted: February 14, 2006  

Suggested Citation

Monfort, Brieuc and Mulder, Christian, Using Credit Ratings for Capital Requirements on Lending to Emerging Market Economies: Possible Impact of a New Basel Accord (March 2000). IMF Working Paper, Vol. , pp. 1-46, 2000. Available at SSRN: http://ssrn.com/abstract=879567

Contact Information

Brieuc Monfort
International Monetary Fund (IMF) - Policy Development and Review Department
700 19th St. NW
Washington, DC 20431
United States
Christian Mulder (Contact Author)
International Monetary Fund (IMF) - Policy Development and Review Department ( email )
700 19th St. NW
Washington, DC 20431
United States
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